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Distribution and Consumer Research
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The Impact of Market Orientation on

the Internationalization of Retailing
Firms: Tesco in Eastern Europe
a

Helen Rogers , Pervez N. Ghauri & Katharine L. George

Manchester Business School , The University of Manchester , UK

Published online: 15 Apr 2011.

To cite this article: Helen Rogers , Pervez N. Ghauri & Katharine L. George (2005) The Impact
of Market Orientation on the Internationalization of Retailing Firms: Tesco in Eastern Europe,
The International Review of Retail, Distribution and Consumer Research, 15:1, 53-74, DOI:
10.1080/0959396042000299120
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Int. Rev. of Retail, Distribution and Consumer Research,

Vol. 15, No. 1, 5374, January 2005

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The Impact of Market Orientation on

the Internationalization of Retailing
Firms: Tesco in Eastern Europe
HELEN ROGERS, PERVEZ N. GHAURI & KATHARINE L. GEORGE
Manchester Business School, The University of Manchester, UK

ABSTRACT This paper investigates a Western retailers market orientation levels in two emerging markets. We examine whether the market orientationcompany performance link holds true
for retailers in emerging economies, despite environmental dierences. By using concepts from
key studies we have assimilated a fully representative model applied through interviews with
top management from Tesco and its subsidiaries and aliates in Hungary and Slovenia. Using
this example, we nd that the market orientationbusiness performance link is valid for Western
retailers in emerging economies. Here, the retailer applied market orientation predominately
through; the use of matching with suppliers of own brand goods; top management emphasis on
market orientation and risk taking. Intelligence generation and dissemination was exercised
via global processes such as brand review.
KEY WORDS: Market orientation, emerging markets, international retailing, matching, Tesco

Introduction
The emergence of a number of new markets in Asia and East Europe has created
new opportunities for retailing rms. These rms are thus entering these markets
and becoming increasingly international. Most internationalization and market
orientation studies to date have focused on manufacturing companies in Western,
highly developed markets. A key article by Kacker (1986) signalled a shift in focus
in the retail sector towards a more global outlook. As we now know, this new
focus has signicantly changed the way that the retail sector operates. Lado &
Maydeu-Olivares (1998: 26) dene market orientation as a strategy used to reach
a sustainable competitive advantage . . . [through] the use of resources and capabilities . . . [and] complex organizational knowledge. This sustainable competitive
advantage results in a long-term differentiated position, and therefore brand
loyalty and prot. Market orientation has been described as the cornerstone of
marketing (Kohli & Jaworski, 1990; Appiah-Adu, 1998). It is about satisfying the
market through a superior understanding and response to local needs, which
include those of nal and intermediate customers, competitors and the macroCorrespondence Address: Pervez N. Ghauri, Manchester School of Business, University of Manchester,
P.O. BOX 88, Manchester M60 1QD, UK. Tel.: 0161-306 3438; Fax: 0161-306 3505; Email:
pervez.ghauri@mbs.ac.uk
ISSN 0959-3969 Print/1466-4402 Online/05/010053-22
DOI: 10.1080/0959396042000299120

2005 Taylor & Francis Ltd

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H. Rogers et al.

environment (Lado & Maydeu-Olivares, 1998). Landmark studies by Narver &

Slater (1990) and Jaworski & Kohli (1993) have demonstrated how market orientation leads to superior performance and success.
An increasing number of Western rms have expanded into emerging, high
growth markets with more fragmented competition, such as those in Central
Europe and Asia (Alexander & Myers, 2000; Buckley & Ghauri, 1999). However,
the top ve retailers in Poland all foreign owned account for only 12 percent
of the market; far below the 60 percent share that the top ve have in Germany
or Spain (The Economist, 2001, p. 6). Despite the existence of a greater psychic
distance between home country operations in the UK and those in transition
economies (compared with mature markets such as those in France and
Germany), retailers are increasingly investing in these so-called emerging markets
(Evans et al., 2000). Those emerging markets that have now reduced political and
economic barriers are particularly attractive (McGoldrick & Ho, 1992; Cavusgil et
al., 2002). Moreover, there is a signicant transfer of knowledge from Western
Europe to markets in Eastern Europe in the retailing industry (Dawson & Henley,
1999).
Diverse political, economic, competitive, social and technological environments
put a premium on market orientation strategies, which enable greater rm
response to dissimilar needs (Ghauri & Holstius, 1996). A number of scholars
have presented the idea of strategic exibility and its impact on rm performance (Aaker & Mascarenhas, 1984; Yin, 1995; Hitt et al., 1998; Abbott &
Banerji, 2003). However, owing to the nature of the retailing industry (its direct
contact with the market and customers) and our focus on internationalization into
emerging markets, we nd market orientation as a more suitable concept to
explore the success of retailing rms into these markets. Market orientation is of
even greater interest when entry into emerging markets is undertaken by a
Western retailing rm, suggesting that a close understanding and response to
customer needs is vital. An extended case study of a leading Western retailer will
provide an enhanced understanding of their levels of market orientation in emerging markets. More specically we address the following questions:
.
.
.

How can a Western retailer apply market orientation concepts in emerging

markets?
How can market orientation levels explain the performance differences of a
Western retailer in two different emerging markets?
How do any other phenomena inuence performance of a Western retailer in
the two emerging markets?

Previous Research
Market orientation has been analysed from various perspectives. Narver & Slater
(1990, p. 17) dene market orientation as the organization culture . . . that most
effectively and efciently creates the necessary behaviours for the creation of
superior value for buyers and, thus, continuous superior performance for the business. This suggests that a business can have only one, ideal homogeneous culture.

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Internationalization of Retailing Firms

55

However, Kohli & Jaworski (1990) view market orientation as a continuous,

rather than dichotomous either-or construct. They further state that the appropriate unit of analysis is the strategic business unit (SBU), rather than the
organization as a whole, since an organizations SBUs are likely to be marketorientated to different degrees (Kohli & Jaworski, 1990, p. 7). Firms and their
subsidiaries and SBUs differ in the extent to which they generate, disseminate and
respond to market intelligence. As a rms level of market orientation is likely to
differ in different markets and environments, the Kohli and Jaworski pairings
behavioural focus is therefore more relevant to this study.
Kohli & Jaworskis (1990) concept of market orientation as intelligence generation, intelligence dissemination and responsiveness has been accepted and built on
by most subsequent analyses of market orientation (see Narver & Slater, 1990;
Diamantopoulos & Cadogan, 1996; Pitt et al., 1996; Appiah-Adu,1998; Hurley et
al., 1998; Akimova, 2000; Hunt & Lambe, 2000; Elg & Cerne, 2001). In their subsequent studies, Jaworski & Kohli (1993) found market orientation to have a positive
impact on business performance. This was owing to a heightened responsiveness to
consumer needs, resulting in greater demand and therefore higher sales and prot
levels. The impact of the economy must also be accounted for in fast-changing
transition economies. Hooley et al. (2000) have tested Narver & Slaters (1990)
theory in the emerging markets of Central Europe, and found the market orientation business performance link valid and reliable. Hooley et al. (2000) found the
markets they examined (specically Poland and Hungary) to be extremely turbulent, with unpredictable growth rates, and increasing levels of unemployment and
ination (see also Hooley, 1993; Hooley et al., 1993; Shipley & Fonfara, 1993).
Alexander & Myers (2000) present a conceptual model for the study of internationalization of retailing rms. Their model is quite close to the general Entry
Strategies model (Root, 1994; Cateora & Ghauri, 2000) and can in fact be applied
to the internationalization of any rm. They claim that studies on the internationalization of retailing focus too much on retailing itself and not on the broader
framework of conceptual thought on international business (Myers & Alexander,
1997; Alexander & Myers, 2000, p. 349). However, we believe that to understand
the performance of a retailing rm in a totally unfamiliar market needs some
specic conceptualisation (Burt, 1993; Wrigley, 2000). According to Piercy et al.
(2002) market orientation is connected to retail operatives expectations. They
conclude that the employees in market oriented rms are aware of service and
quality imperatives. We believe that this would automatically inuence the performance of these rms.
Hymer (1976) found that MNEs need to offset any disadvantages of internation-alization by utilizing other unique capabilities gained through their advantage
of multinationality. Foreign rms bring new technology and know-how with them
when they internationalize, not to mention greater economies of scale and economies of scope (Ghauri & Holstius, 1996; Cateora & Ghauri, 2000). This provides
a comparative advantage over local rms, though the less tacit component of this
knowledge is likely to be copied by other rms as competition increases (Kogut &
Zander, 1993). However, this knowledge will be difcult to transfer, and, as Pellegrini (1989) notes, rms will always lose some know-how when they internationalize. It is the MNEs efciency in internalization or the transfer of its

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H. Rogers et al.

core knowledge competencies across its international subsidiaries that determines

its comparative advantage (Yamin, 2001). To make best use of unique know-how,
rms must ensure that they adequately serve the markets needs, placing a
premium on market orientation for Western rms in emerging markets (Han &
Kim, 1998). Sternquist et al. (2004) relate this to different types of ownership.
Ghauri & Holstius (1996) show how these MNEs may overcome problems relating to diverse cultural, political and economic environments. Through a dynamic
analysis, they examine how Western rms carry out matching in transition economies. The rms facilitate entry into foreign markets through the active promotion
of relationships with key players at home and abroad, thereby developing mutual
trust and a strong contact network (Johanson & Mattsson, 1987). Sternquist
(1997) and Vida (2000) investigate internationalization of US retailers and
conclude that internationalization is based on four characteristics; retail-specic
advantages, dimensional factors, market orientation and strategic teams. Moreover, US retailers often go abroad to similar markets and with a full-control entry
mode. However, while US retailers such as Wal-Mart emphasize low cost operating service and a unique organizational culture they do not offer any signicant
supply chain advantages over local retailers (Arnold & Fernie, 2000).
Ghauri et al. (2002, p. 2) suggest that increased retailer consolidation and internationalization has signicantly imposed challenging alterations of their businessmodels on the consumer and society. This suggests aggressive retailing where
foreign retailers impose their business practices on to local markets. One factor a
retailer will often have to adapt is brand image (Brown & Burt, 1992; Burt &
Carralero-Encinas, 1999). As a largely intangible variable, a brand or store image
will not be completely transferred to new locations, and can project different
meanings in different cultures (Brown & Burt, 1992). The retailer needs to understand what factors of its image are tangible or easily transferable, and what
factors are intangible and thus take longer to transfer yet provide a more
sustainable competitive advantage over other rms (Kacker, 1986; Burt & Carralero-Encinas, 1999; Burt et al., 2003). Williams (1992) notes obstacles to
internationalization, such as: lack of resources or management knowledge, local
competition, operating difculties and government policy. Many of these obstacles
can be overcome, with international opportunities exploited through market orientation activities and a geocentric, interdependent, meritocratic rm attitude (i.e.
the rm operates a system in which talented people are promoted on the basis of
their achievement) (Perlmutter, 1969).
Morgan & Hunt (1994) describe the benecial impact of inter-rm relationships
in providing the rm with different competencies. These networks will benet from
formal and informal inter-rm market orientation practices, ensuring that new
competencies match consumer needs (Coviello & Munro, 1997). Relationships
with all actors including customers, suppliers and authorities are thus developed through market orientation. Burt (1993) notes that most UK retailers
expand internationally through investment into the USA, France or Germany
all markets with low psychic distance. This problem of psychic distance has been
reduced in recent years by improved technology and converging tastes (Moore et
al., 2000). In emerging markets, any disadvantage from psychic distance is likely
to be offset by both lower levels of competition and the fact that they are often

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Internationalization of Retailing Firms

57

large growing markets. Evans et al. (2000) believe that the concept of psychic
distance provides an appropriate theoretical framework to understand variations
in performance of retailing rms. We believe that market orientation is one way
of handling this psychic distance.
Doherty (2000) claims that the retail internationalization process has remained
relatively under-researched. Specic factors related to retail internationalization do
remain largely neglected in the literature. Brown & Burt (1992) suggest that future
research should look at retail internationalization in terms of standardization
versus adaptation. Moreover, they suggest that future research should compare
internationalization of retailers at different stages of the internationalization
process. Sparks (2000) contributed to the debate by presenting the results of a
longitudinal case study following the global transformation of a retailing business.
Here he argues that to encourage long-term success, internationalization is best
regarded as reciprocity rather than simple market entry. Burt et al. (2002) studied
the internationalization of Marks and Spencer over 30 years, particularly its large
scale withdrawal from international markets. In other words it studied failure of
internationalization and concluded that to succeed internationally adaptation to
the local market is a key issue.
Model
The model developed here includes concepts implicit in Kohli & Jaworski (1990),
Johanson & Mattsson (1987) and Ghauri & Holstius (1996). Intelligence generation, intelligence dissemination and responsiveness have remained as the key
factors that dene a market orientation. Performance as a consequence of a
market orientation has been added to the model (see Figure 1).
When comparing a companys market orientation across two different countries,
it has been found that market turbulence and competitive intensity in particular
are likely to have an impact in explaining differing performance levels (AppiahAdu, 1998). Matsuno & Mentzer (2000) also found that the type of environmental

Figure 1. Micro level matching, network and market orientation in the internationalization of
retailing rms.

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H. Rogers et al.

business strategy used would moderate the market orientationbusiness performance link. For these reasons, these moderators are also incorporated into our
analysis, along with economic indicators, as part of the Western and emerging
country economic environments.
In previous studies such as Ghauri & Holstius (1996) matching for all stages of
internationalization has been examined, whilst other authors, such as Dawson
(2001), look more closely at just one matching phase, at the entry level. The model
used here discounts matching at the macro and global levels, as micro level matching is the best t here. Whilst macro and global level matching are important for
rms entering less-industrialized nations (where market research channels are less
established) analysis of these additional factors were beyond the scope and focus
of this research. Micro level matching is more relevant as an ongoing process for
market establishment and development, rather than market search and entry.
Turning now to the remaining elements of the model shown in Figure 1, we
start with intelligence generation. This refers specically to market intelligence and
forms the beginning of any market orientation strategy. It includes research into
customer needs and preferences, and the monitoring of government regulations,
competition, industry-level changes, technology and other environmental forces.
Intelligence dissemination on the other hand, incorporates the communication
procedures for all departments within the rm. Information is typically disseminated through newsletters, chains of information, formal procedures and
discussions. Finally, responsiveness refers to any actions carried out in response to
the above intelligence generation and dissemination procedures.
It follows that increased intelligence generation, dissemination and responsiveness provides a more unifying focus and vision within the rm, resulting in greater
customer satisfaction and hence repeat business and improved performance. This
market orientation business performance link is well established, as reported by
Narver & Slater (1990), Pitt et al. (1996), Appiah-Adu (1998), Han & Kim (1998),
Lado & Maydeu-Olivares (1998), Akimova (2000) and Hooley et al. (2000).
Methodology
Many previous studies regarding market orientation focus on a primarily quantitative approach (Narver & Slater, 1990; Jaworski & Kohli, 1993; Pitt et al., 1996;
Appiah-Adu, 1998; Lado & Maydeu-Olivares, 1998). These studies are used to
quantify the market orientationcompany performance link, providing information from a large variety of rms. However, the concepts used to dene market
orientation and performance levels are often based upon subjective, managerial
opinion, which is best suited to case study design; enabling further understanding
regarding how and why market orientation inuences rm performance (see
Miles & Huberman, 1994; Yin, 1994; Akimova, 2000). This research aims to
provide a greater understanding of retailer market orientation in emerging markets
as regards to how market orientation is exercised and implemented, rather than
explaining whether companies use market orientation or not. As pointed out by
Hooley & Beracs (1997), market orientation is a crucial part of competitive positioning that inuences rm performance. The resource-based view of their study is
quite close to our approach, however we focus on market orientation due to the

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Internationalization of Retailing Firms

59

nature of the retailing sector. The research framework proposed by Akehurst &
Alexander (1995) focuses on key questions regarding the what, why, how and
where of the internationalization of retailing operations. Myers & Alexander
(1997) adopted a survey approach to evaluate the relative merits of Eastern
European markets in the context of their appraisal of other European and global
markets. This data indicated the perceived merits of these different markets on the
basis of the respondents market of origin.
In our study, a rms level of market orientation is compared in two markets in
which it has different levels of success. The case study format enables an in-depth
understanding of a retailers market orientation levels in two emerging Central
European markets. The research design follows an exploratory single case study
with multiple units of analysis, allowing a comparison to be made between the
operations of one rm in two countries (Yin, 1994, p. 39). Moreover, we examine
current and historical data from the last six years to provide a dynamic investigation, showing change processes and their impact over time. Using only crosssectional information, as stated by Jaworski & Kohli (1993), limits the ability to
fully examine these processes.
The selection of the case company involved identifying a retailing rm from a
Western nation that had internationalized into at least two emerging markets. The
supermarket chain, Tesco met these criteria. Central Europe was chosen as the
area of focus as the countries here were the rst emerging markets that Tesco
entered. Hungary was their point of entry in early 1995, followed in 1996 by
Poland, the Slovak and Czech Republics.
Table 1 shows the number of stores per head of population. As shown,
Hungary has a population nearly double that of Slovakia, whilst having almost a
third more hypermarkets. Hungary has in fact been the most successful market
for Tesco in Central Europe. Their main success criterion is market share, and by
2002 the company was hypermarket leader in all of its Central European markets
(Tesco, 2002). However, hypermarkets account for less than 50 percent of the
retail market in Hungary, and only 15 percent in Slovakia, indicating that signicant opportunity for further expansion remains (Wagstyl, 1999, p. 2; US
Department of Agriculture, 2001, p. 19).
The majority of data were gathered through in-depth, semi-structured personal
interviews. We spoke to both top management responsible for Central European

Table 1. Number of Tesco stores compared with population size in the UK, Hungary and the
Slovak in 2002

UK

Hungary
Slovakia

Country population

No. of hypermarkets

No. of other stores

59.8 million

41 (smaller than
those in Central Europe)

445 superstores

10.3 million
5.3 million

23
8

168 high street stores

75 small express stores
31 small stores
5 department stores

Source: Slovakia Statistical Ofce, 2002; UK National Statistics, 2002.

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H. Rogers et al.

operations and the particular entry, and subsidiary management responsible for
specic country operations. Observations were also carried out in host-country
stores of Tesco, as well as their competitors. In total 11 senior managers at Tesco
were interviewed four represented Hungary, two Slovakia and ve UK headquarters (see Table 2).
All the interviews (carried out during 2002) were conducted using open-ended
questions, each lasting approximately one hour. They were tape recorded and
subsequently transcribed and summarised (Yin, 1994; Ghauri & Grnhaug, 2002).
A summary transcript was returned to key respondents for verication. Certain
potentially sensitive information has also been kept anonymous, with the respondents job title removed and replaced with the less revealing title of Tesco
Director. Secondary information was collected through company documentation,
which proved extremely revealing. This includes company reports, accounts and
their website. Other sources include the Hungarian and Slovakian national web
pages, UK Mintel reports and newspapers.
The analysis was carried out as described by the model in Figure 1. Relationships external to the rm were examined through micro level matching, with
environmental moderators also considered, particularly regarding; local customs;
employees; suppliers; market turbulence and the economy; and competitive intensity. Antecedents to a market orientation are evaluated, focusing on top
management emphasis on market orientation and interdepartmental conict and
connectedness.

Findings and Discussion

Matching
The initial research Tesco carries out when examining expansion possibilities is
through the Business Development Unit. This team goes out to a wide range of
locations, looking and talking to businesses mainly for acquisition. They investigate companies, examining any synergies with Tescos values and business culture,
and with a view to looking for a t with the Tesco business model. Having
acquired businesses, followed by organic growth in both Hungary and Slovakia,
Tesco entered into their project phase of development through establishing supply

Table 2. Management interviewed at Tesco

UK headquarters

Hungary

Slovakia

Chief Executive (CE) of

Central Europe (2001 onwards)
Group Supply Chain Director
(Former CE of Central Europe)
Group Process Director
for Retail
Group Marketing Director
Supply Chain Manager

CE of Hungary

Commercial Director

Hard lines Trading Director

Category Manager, Fresh

Food

Marketing Director
Research Manager

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Internationalization of Retailing Firms

61

chains and legislative contact networks, using mainly host-country employees as

suggested by Ghauri & Holstius (1996). Retailers also deal with a large number of
businesses, particularly concerning the supply chain, which therefore benets from
the formation of good relationships. Many local relationships are facilitated by
the countrys RACI representative, who ensures processes are carried out
Responsibily, with Accountability, and after Consulting and Informing the
necessary people.
Tesco works with local authorities, gaining knowledge of operations in the EU.
They assist in developing legislation and learning, encouraging increased standards
on food safety. The company also works with Trade Unions in order to develop
the work force, providing benets and rewards. For example, in 1997, Tesco introduced Sunday trading for the rst time in Hungary, where the premium wage paid
for those shifts were previously unheard of (CE Hungary).
Slovakia and the Czech Republic share a head ofce in Prague, where many
functions, such as buying and marketing are centrally carried out. Tesco views the
Czech and Slovak Republics as more regionally, than nationally, different. During
the time that they were united as one country there was a great deal of movement
between the two areas, resulting in high levels of mixed parentage and cultural
integration (Slovak Category Manager). However, from a market analysis point
of view, it is important to remember that they are separate nations on a cultural,
political and economical level with separate needs.
Local Employees
A heavy expatriate presence accompanies most market entries. Now that they are
established Tesco has been working to reduce the number of expatriates in Central
Europe in order to forge closer relations with host country environments. The
Excel training schemes are country-specic programmes for the development of
local people to full this role, hence avoiding potential difculties in nding
experienced retailers (employees), as explained by the CE of Central Europe;
When we went to Hungary there was no infrastructure, no large retailer, so you
couldnt even poach retail skills as there were none in how to run
hypermarkets.

The training of local employees has also posed some cultural diculties, as
acknowledged by the Chief Executive of Central Europe:

Under the communist regimes people were just told what to do. One of the
toughest things is to say, you make the decisions, you think about it, use your
own initiative. So its quite dierent in the way you have to manage.
An open-minded approach is expected from both expatriate managers and local
employees, to aid mutual understanding between different parties. Initially, Tesco
was less aware of this need, as described by a Director:

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H. Rogers et al.

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If you want things to happen you have to nd out who the real movers and
shakers are by having a quiet conversation with them. When we sent out the
rst expatriates, we didnt spend enough time exploring that. So they would
often go to meetings, agree all the stu, and they [local employees] had no
intention of doing it . . . They dont always mean yes when they say it. And its
not because theyre dishonest, its just the way they do business. Understanding
the cultural dierence is really dicult but its so important. We dont spend
enough time doing it. The small things become really big things.

Suppliers
When Tesco initially entered Central Europe, they acquired existing businesses,
with established supply chains. This made complex partnerships with new suppliers unnecessary, limiting the number of inter-rm relationships formed. The
Process Director remarks that, one of our strengths is in partnering our suppliers
and sharing information. Tesco make use of their scale leverages, which provides
them with more clout and capability towards suppliers, enabling lower prices.
There are now two supply depots in Hungary. This has led to improved quality
control over suppliers, as large orders are checked centrally at the depot, rather
than by each individual store. There are large tariff barriers and complex procedures for products imported into Hungary. For this reason, almost 90 percent of
all products sold are currently sourced in Hungary. Much of this has been imported
by wholesalers, saving time and costs for Tesco. This makes good relations with
local actors of great importance, as explained by the Hungarian Trading Director:
In the UK we know what sort of legislation is required so we can help. Our
meat suppliers have been out talking to the meat suppliers in this country, to
make sure they reach a certain standard, the same with some of the produce
suppliers. We try to do as much as we can to educate our suppliers. It would be
funded three ways with Tesco, the Hungarian supplier and the UK supplier
each paying a share.

Environmental Moderators
Market Turbulence and the Economy
The economic conditions of Hungary and Slovakia have followed different paths
over the last eight years. As shown in Table 3, Hungarys GDP per capita is
almost 1.5 times more than Slovakias, with this difference being fairly consistent
over time. Hungary has had more consistent increases in GDP than Slovakia, a
more stable economy. However, both GDPs are much lower than the more industrialized UK, which had a GDP per capita of $25,875 in 2000 (UK National
Statistics, 2002). The UKs GDP has also proven to be more stable than the transition economies, with a consistently high GDP of between only 2.1 percent and
3.0 percent (UK National Statistics, 2002).

H
S
H
S
H
S
H
S
H
S

4052
2721
2.9
4.9
12.4
14.6
18.8
13.4
3.12
3.17

4359
3423
1.5
6.7
12.1
13.1
28.2
9.9
3.38
3.17

1995
4425
3679
1.3
6.2
11.8
12.8
23.6
5.8
3.42
3.25

1996
4495
3802
4.6
6.2
11.6
12.5
18.3
6.1
3.67
3.25

1997
4641
3970
4.9
4.1
10.1
15.6
14.3
6.7
3.71
3.29

1998
4757
3650
4.2
1.9
9.9
19.2
10.0
10.6
3.71
3.33

1999

4589
3556
5.2
2.2
9.1
17.9
9.8
12.0
3.75
3.37

2000

5121
3668
3.8
3.3
8.4
19.8
8.8
7.3
3.75
3.42

2001 est.

na
na
4.0
3.5
na
na
5.7
4.0
na
na

2002 est.

Notes: H = Hungary, S = Slovakia. * Assessments made for core areas of reform towards a market economy, including markets and trade,
enterprises, infrastructure and nancial institutions. Measurement are from 1 (rigidly planned economy) to 4 + (standard of an industrialized
market economy).
Source: European Bank for Reconstruction and Development, 2000:6263, 8081.

Transition indicator*

Consumer prices (annual average % change)

Unemployment (end-year in % of labour force)

GDP (% change; real terms)

GDP (per capita in US$)

1994

Table 3. Economic conditions in Hungary and Slovakia

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Internationalization of Retailing Firms

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Further turbulence is likely with the entry of Hungary and Slovakia into the
EU in 2004. EU membership is expected to benet both the local economy and
multinational businesses such as Tesco, primarily through a reduction in the high
duty and tariff barriers, providing greater access to international brands. Disposable income is also likely to increase under the EU. This will in turn increase
labour costs for Tesco, whilst stricter EU legislation on driving hours allowed on
the roads will increase transport costs. As stated by the CE of Tesco Hungary;
local bureaucracy is likely to be reduced, though it may well be replaced by that
of the EU.
Competitive Intensity
In Central Europe, retailers have to react swiftly to competitors moves because
consumers quickly become aware of any differences. When Tesco rst entered
Hungary in 1994 there were no high street retailers as such, no other hypermarkets and no category killers (CE Hungary). This is changing as there are now
two IKEAs and Mediamarket and Electroworld opened in Hungary near a Tesco
hypermarket in 2001. This provides cause to re-examine the Tesco offer. Should
they and can they continue to be successful? Since Electroworld opened next
door to Tesco, sales of electrical goods in the store have dropped sharply (CE
Hungary). However, Tesco continue to stock the core ranges, utilizing their
strength in consumables. When Tesco entered Slovakia, they instantly became the
countrys largest retailer, since they had acquired ve department stores from
Kmart. Since then, competition has greatly increased, and Slovakia now has similar levels of competition to Hungary.
Carrefour (the worlds largest hypermarket retailer) has a store directly opposite
to Tescos main Bratislava store, open from 8 a.m.11 p.m. (Tesco, is open
24 hours). They now have two stores in Bratislava, and two outside the capital.
Hypernova (Ahold Group, Dutch) entered Slovakia in 2002. They have opened a
store in Bratislava, and in several other towns, with plans for four or ve more
stores this year. They too are open limited hours from 8 a.m.10 p.m.
In conclusion, Hungary is closer to being a fully developed market economy,
which may partly explain why Tesco has performed better there than in Slovakia.
The other explanation may be to do with differing market orientation levels.
When Tesco originally entered Slovakia, there was very little competition, making
the rm an instant market leader. They entered Hungary at a similar time to other
Western retailers, and so faced ercer competition. The fact that Tesco is now
more successful in Hungary suggests that greater market orientation has been
exercised in this market.

Antecedents to a Market Orientation

Top Management Emphasis on Market Orientation
The Tesco Values, brought in from their UK head ofce, emphasises customer
needs. However, the fact that these Values are brought in from the UK, rather
than developed in-country, means they are set at a global, rather than local level.

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This brings unity to the corporation but can restrict local adaptation. Attempts at
top management market orientation are being made in both Hungary and Slovakia, though an emphasis on international processes throughout Tesco such as
the Brand Review might conict with the need for country-specic practices.
Innovation is actively encouraged at senior management level in both the UK and
Central Europe, as explained by the Hungarian Trading Director:
We trust people and use their ideas, even though we may not know every detail
about the nancial and operational viability, but because we believe its a good
thing, well go with it. Sometimes itll work and sometimes it wont, and we
learn from our mistakes.

Interdepartmental Conict and Connectedness

There are strong global links between Tescos operations, with top-level managers
regularly meeting their counterparts from other countries, sharing information
and forming close contacts. However, this is perhaps to the detriment of closer incountry contact with those from different levels of the company. The Hungarian
Marketing Director meets her other Central European counterparts three or four
times a month. There is considerable contact between people in equivalent roles in
different countries, though less emphasis is placed on meeting other departments
in the same country. The Slovak Category Manager explained that departments
are spread out in Slovakia.
We can conclude that the Group has well-developed antecedents to a market
orientation regarding top management, though lesser levels in terms of interdepartmental connectedness in Slovakia in particular. One of the most important
antecedents is top management emphasis on the market orientation, and subsequent willingness to take risks (Jaworski & Kohli, 1993).
Market Orientation: Intelligence Generation
One of the main advantages of their initial acquisition strategy was that Tesco
immediately gained access to established businesses. They could use these as a
springboard to develop operations, rather than focus on time-consuming local
research. Cutting corners like this can lead to problems. Since 1999 Customer
Panels have been operating in all Central European countries to enable intelligence
to be communicated to Head Ofce. This year, Customer Focus Groups have
been put in place, along with the Brand Review (which measures performance). In
addition, they analyse brand share and have a weekly sales report.
Image research is carried out across the country as a whole, with a Brand Image
Tracker being completed every six months. Questions focus on perceptions of
price image, quality image, service, range and promotions. These large-scale questionnaires are distributed to catchment areas of their own and competitors stores.
From 2002, detailed research has been carried out focusing on the markets one
biggest competitor. In Hungary, this is Auchan (with ve hypermarkets) and in
Slovakia, Kauand (with 12 hypermarkets).

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Local research is focused on stores in specic areas of each country and examines why they vary. Cross-sections of customers sit with store management to
describe their experiences at Tesco, in terms of price, quality, products, departments, customer services, etc. Every year for one week each store asks every tenth
customer about their postcode at the checkout. The amount spent and time/date
of purchase is then analysed. Cross border research looks at how more trade can
be drawn from over borders. Hungary and Slovakia are landlocked countries so
many of Tescos hypermarkets are near to borders, though the equivalent amount
of custom is not from other countries. This is only a recent initiation in Central
Europe. Customer complaints are recorded with the numbers of problems in each
area analysed. Seasonal and pre/post advertisement research is typically undertaken
through qualitative methods. As the main marketing tool throughout Central
Europe, promotion leaets are evaluated through focus group discussions.
Human Resources
The heads of each Support Ofce are all expatriates, but there are succession
plans for all their positions to be replaced by locals. The Hungarian Trading
Director, explains that as an expatriate Im here to do a job . . . but Im also here
to train and help people. This means working with the Human Resource team to
set up training courses, whilst also talking to people and building in the Tesco
values so that local employees can work independently.
In Slovakia, management have also been poached from competitors to enable
greater information generation. Knowledge more general to the hypermarket business in Central Europe was also initially gathered through communications with
the already established Hungarian subsidiary.

Market Orientation: Intelligence Dissemination

Structures
In 1998, Tesco developed pan-regional IT infrastructures. These communicated
operational capabilities for the countries, based on the more developed hypermarket experience from Hungary. Most knowledge though is shared through informal
networks such as telephone calls (Former CE Central Europe). The country CEOs
meet every month for two days. Tesco has an International Commercial team,
based in the UK that works with individual country teams and last year the International Support Ofce Marketing Team was established. This ensures that they
have a similar strategy regarding how research is used and managed, making
results more comparable.
Support Oces
The Process team is currently working with the Support Ofces in each country to
develop their own capabilities and solve their own retail issues. Ofces increase
their independence through on-the-job training, skills sessions and straightforward
knowledge sharing by answering and encouraging questions. Hungary has had its

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67

own Support Ofce for two years. It helps head ofce to communicate with stores,
which is needed when operations grow, since it accumulates information (such as
market research) from all different parts of the business. There is a Support Ofce
for each Central European country, though the Czech and Slovak Republics share
one.
We can thus conclude that Tesco management encourages information sharing,
particularly through international processes such as the annual country Brand
Reviews. This is cascaded through the company via presentations and meetings
(though information is not shared as frequently as in the UK owing to a lower
research budget for Central Europe). International knowledge dissemination
ensures that all market operations have a similar strategy regarding how they use
and manage research, making results more comparable and enabling solutions to
be utilized across the Group. The emphasis on inter- rather than intra-country
knowledge sharing could stie local market individuality, however, resulting in a
focus on process, rather than the products demanded by the customer. Support
Ofces and country-specic innovations help countries become more independent,
whilst providing connections between markets.
Market Orientation: Response Design
Tescos trading philosophy is based around the Steering Wheel comprising a
Customer Plan, Operations Plan, People Plan and Finance Plan, which work
together to deliver change through an annual country Business Plan, based on
information gained from customers. The Steering Wheel is an ongoing continuous
improvement process, used in every country that Tesco has a presence.
Information gained from the Brand Review is presented to the Board of each
country and the Central Europe Board. Despite carrying out separate Brand
Reviews, each countrys results are amalgamated for Central Europe as a whole.
This results in a Customer Plan aiming to serve customer needs associated with
price, service and quality. Responding to the customer can be costly, so the
Operations Plan attempts to cut costs through operational efciencies (such as
new ordering or stock replenishment systems) or obtaining better margins from
suppliers.
The People Plan aims to ensure that staff are capable of delivering the objectives, especially by growing capability in-country rather than relying on
expatriates. There are many people challenges ahead, both in terms of improving the capabilities of the existing workforce, and also in nding employees for
new stores including a store manager, 50 support managers and 500 staff, all
of whom need to be trained. The Finance Plan tracks and measures the costs
and benets of these plans, making sure that they deliver results. It also examines the long-term aspirations of the business, which are then communicated to
the City.
Market Orientation: Response Implementation
Locally, variations in Tescos Central European markets are particularly apparent
in areas such as specic legislation, knowledge and people, including consumer

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H. Rogers et al.

differences. The Process Director remarked that everythings local; everything.

Nothing goes to the store in English; all the labels, etc. are in the local language.
However, Tesco tries not to have too many differences between the Central
European countries. According to the Hungarian CE:

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Owing to the sheer size of the hypermarkets in Central Europe, we are able to
oer a more exible range, including more seasonal items than in the UK.
Tesco introduced a merchandising function, which is putting Planogram
systems into stores. Here, a photograph is taken which reproduces product ows,
enabling increased return of space for specic products through provision of range
information. Tesco Hungary now has 3050,000 products in their range much
less than in other Central European countries since this offer is specically tailored
to customer needs. Planograms are yet to be introduced in Slovakia, as Hungary
has been the test-bed.
Own Product Lines
Tesco has its own Value and Standard lines in all its Central European
markets. The Finest brand may be launched there in future, though the
current focus on price has restricted its feasibility (Slovak Category
Manager). Research results highlighted by the recent Brand Reviews show
the Value brand to be a major strength. There are more Tesco own line
products in Central Europe than in the UK because everything is so pricedriven in these emerging markets. In 1998, Hungary was the rst Central
European country to launch the Value brand. The Standard brand was then
introduced in 1999. They have worked to develop their own label within
Hungary. For example, meat and poultry is sourced from Hungary and has
the Hungarian ag on it to remind customers of that. Tesco Hungary has
more than 400 own product ranges, representing 20 percent of total food
sales (CE Hungary).
The main competitors to Tesco Slovakia have far fewer own-branded products.
This gives Tesco Slovakia and Hungary a comparative advantage over competitors, as they are able to use knowledge from well-developed own brand lines in
the UK to enhance own brand production for these countries.
Service
Tesco UK has an extensive range of branded services, from in-store cafes, to online shopping and even nancial services. In Central Europe, most services are instore and tangible; no overseas operations even have their own website, much less
on-line shopping. In-store services are currently rather basic, or provided through
the other retail outlets on the premises (who rent sites from Tesco), such as a
launderette or cre`che. As the Central European economies grow, these branded
service offerings are also likely to grow, as Tesco wants to offer them ahead of
their competitors.

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69

Performance
Organizational Commitment and Esprit de Corps

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In Central Europe there is a genuine perception by management of close-knit

loyalty to the rm, backed up by observations in both countries of analysis. Slovakias more dispersed management set-up, within different ofces in that country
and in the Czech Republic, suggests less opportunity to establish the esprit de
corps of Hungary, which has the whole of management for that country within
one head ofce.
Prot
Hungarian operations are unilaterally described as the most successful in Central
Europe by top management; however, this is largely due to external factors, rather
than any internal strategic differences in market orientation:
Hungary is the most developed, now. The economy is strong and we were there
early. But the others are catching up all of the countries are protable. It is
not a case of being protable but about how you drive further prots; its all
about growth. (CE Central Europe)
By 2002, Tesco entered into prot in all of its Central European operations.
Hungary achieved a prot the previous year, though market entry was a year
earlier than the other countries, so this is perhaps to be expected. Overall it took
six years to make a prot. A lengthy payback period is to be expected, owing to
the start up costs involved in entering a new market. Here, these costs involved
not only researching and developing local knowledge and efcient supply chains,
but also of rst acquiring and then building foreign retail outlets (Former CE
Central Europe).
Market Share
Our strategy is that well only go to a country if we think were going to be the
number one or number two player in there were not interested in going in and
only opening a few stores. (CE Central Europe)
Tesco is the market leader in hypermarket chains in all of its Central European
countries. This does not mean that the market is stagnant; there are still opportunities in all four markets for gaining overall market share. In Hungary, Tesco
entered as a small player in a medium sized market. However, the competition
was soon outstripped through a rapid expansion programme. When entering
Slovakia, Tesco immediately became the largest retailer but its dominance is
waning. As in Hungary, there is a huge opportunity for inltration in Slovakia,
since hypermarkets currently only take 15 percent of this market (US Department
of Agriculture, 2001, p. 19).

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Conclusions
Tesco is market leader in the UK, Hungary and Slovakia. The company has taken
many of the processes used in its UK home country operations and applied them
to transition country markets. Countries are encouraged to follow successful
formulae achieved elsewhere particularly from the more developed operations in
the UK headquarters. Limited market research was carried out in these markets
and it is the recent introduction of processes such as the Brand Review, Steering
Wheel and Pricing Function that improved levels. Central European Brand
Reviews encourage local market operatives to carry out market research, used to
formulate country-specic Business Plans. These are disseminated to employees at
all levels in that market, and to top management Tesco-wide. One unilateral factor
common across Central Europe is consumer demand for low prices. The company
responded to this through competitive pricing and regular special offer price
discounts.
Tesco carries out micro level matching mainly in the form of close work with
suppliers. Relationships with other actors, such as competitors and suppliers of
external brands, are limited. Some matching also takes place through the active
employment of local, rather than expatriate managers. Top management provide
antecedents to a market orientation through emphasis on the need for local awareness. Top management willingness to take risks and innovate also improves local
relations. We believe that with additional matching, Tesco could have achieved
better success, e.g. prot in less than six years. Based on this example, therefore, it
seems that Western retailers transfer processes developed in their home market to
transition markets, in order to gain economies of scope through international knowledge sharing. This global focus can limit individual country market orientation,
though many of these processes work to encourage a customer focus. However, they
are often introduced later and at lower levels than in the retailers home country, so
have a less positive impact on market orientation. Performance levels are also higher
in Hungary, indicating some correlation with the higher degree of market orientation. Western retailers do not necessarily have equal levels of market orientation in
all of their markets. Since the same market that had a lower market orientation also
had lower performance levels, a positive correlation between the two variables is
suggested, as expected from previous research carried out in other environments
(Kohli & Jaworski, 1990; Narver & Slater, 1990; Jaworski & Kohli, 1993).
Tescos strategy of rapid growth and expansion in both of its Central European
markets (as shown in Table 4) was a very costly but calculated gamble. This was
mainly due to the fact that they opted to build hypermarkets, which owing to

Table 4. Number of Tesco hypermarkets opened each year in Slovakia and Hungary

Hungary
Slovakia

1997

1998

1999

2000

2001

2002

Total

1
0

1
0

3
0

4
2

6
3

6
3

21
8

Source: Tesco Annual Reports, 19972002.

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Internationalization of Retailing Firms

71

their sheer size and associated project management implications, represent a

sizable investment to any company.
In Hungary in particular, there was an imperative to expand quickly, as competition was keen and the existing stores that they were able to acquire were much
smaller. In Slovakia, Tesco originally acquired ve relatively large department
stores in 1996 and so instantly became the largest retailer in the country. Owing
to the lower level of competition and investment in hypermarkets here, one would
expect that Slovakian operations should have entered into prot quicker than its
Hungarian counterpart. However, it did not. We believe that the reason (in part
at least) lies in the lower level of market orientation employed in Slovakia,
compared with the more extensive levels in Hungary.
When Tescos rst Central European hypermarket opened in Hungary in 1996,
an initial lack of market research caused several problems. Rather than going
down the conventional route of listening to the customer and tailoring the service
offering to meet their suggestions, a new format was forced on the market. In the
event, this approach has been successful when viewed in the longer term. In addition, in recent customer panels a different problem has emerged, in that people
dont remember which store they shop at (Slovak Category Manager). The Tesco
hypermarkets are so similar to those of other foreign competitors, that little differentiation is recognised. A corporate rethink is needed to nd a way of
encouraging customer loyalty in this very price-sensitive market.
This research has focused on Tescos experience of international expansion
into emerging markets in Eastern Europe. However, the principles and lessons
learnt can be applied in a wider context. A countrys environment (including economy- and market turbulence and levels of competition) inuences business success
levels. These inuences are even more insightful when seeming to go against
expected performance levels. For example, operations taking place against excessive competition would be expected to have lower levels of success than those in a
less competitive market. However, when this is not the case, and performance
levels are actually higher in the competitive market, this indicates the dominant
inuence of another factor in this case a market orientation, as a higher level of
competition forces a company to be more market-oriented.
Managerial Implications
An analysis of a Western retailers market orientation in two emerging markets
shows that, even when external environmental factors are taken into consideration, operations in the economy with higher market orientation levels have greater
success. The method introduced in this study, by combining matching and market
orientation, provides useful guidelines for retailers to manage their operations in
emerging markets more successfully. Retailer internationalization was examined
through micro matching and an examination of market orientation on an intraand inter-rm level, which proved to have a denite impact on the performance of
a retailing rm.
In order to sustain a market orientation and hence to perform well, retailing
managers need to be aware of certain antecedents that precede a market orientation.
Of particular importance is a senior management emphasis on market orientation.

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H. Rogers et al.

Matching must be nurtured at all three levels, but particularly at macro and micro
levels, through inter-rm relationships with suppliers and other actors in the market.
Care must be taken in implementing these processes, however, to ensure that they
are not merely imposed from the Western, home market, on to the different market
environments. Matching and market orientation needs to emerge out of the market
intelligence gathered in a particular market.

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